The growth of the direct-to-consumer (D2C) trend is undeniable. In 2022, D2C e-commerce sales in the United States will reach $151.20 billion, an increase of almost 17% compared to 2021, according to eMarketer’s forecast. And according to Diffusion’s Direct-to-Consumer Purchase Intent Index, more than 2 in 5 Americans are familiar with D2C brands, and 69% have made at least one purchase directly from a manufacturer in 2021, bypassing marketplaces like Amazon and Walmart.
One of the causes behind this rising trend is that D2C companies can sell their products at lower costs than traditional consumer brands. This allows them to maintain end-to-end control over the making, marketing, and shipping of products, as well as build stronger relationships with their customers.
As a result, digital transformation is no longer an option for manufacturers but a must. “Every B2B manufacturer making consumer products will risk going bankrupt in 5 years, if they don’t start selling online, directly-to-consumers,” says Kristjan Vilosius, Founder and CEO at Katana, a manufacturing ERP software solution built to help scaling businesses streamline operations, inventory, and sales.
Offering Personalisation Options is Key to Enhanced Customer Experience
Consumers expect to be given the opportunity to shape the products and services they use. According to research by Deloitte, more than 50% of consumers expressed interest in purchasing customised products or services, and 1 in 5 are willing to pay a 20% premium.
Businesses that do not offer personalisation options risk losing revenue and customer loyalty. But doing so also requires reimagining business operations, adapting strategy, and changing core processes such as manufacturing, distribution, marketing, and customer service.
It goes without saying that the D2C model is appealing to manufacturers. However, in this increasingly competitive and challenging landscape, many D2C brands will struggle to keep up with their growth trajectory while remaining profitable. Many will fail, industry titans are likely to acquire others, and some will survive and adapt, emerging as the brands of tomorrow.
Manufacturers can obtain a competitive edge through improved data management, resilient supply chains, advanced analytics that anticipate machine failures, and better inventory management from raw materials to finished goods.
The future of manufacturing is flexible, diverse, and omnichannel
Large corporations have had tremendous success by adding D2C to their existing strategy, creating an omnichannel presence that gives them the reach they need to continue evolving and growing.
“The future of manufacturing is flexible, diverse, and omnichannel. Modern D2C manufacturers should optimise sales order fulfillment for made-to-order and made-to-stock workflows, centralise e-commerce and B2B operations, track inventory in real-time, and gain a complete view on business operations,” adds Katana‘s Founder and CEO, Kristjan Vilosius.
For example, Nike’s bet on D2C and enhanced customer experience has proved so successful that the company stopped selling its products on Amazon in 2019. In addition, Nike capitalised on the personalisation trend by offering customers the possibility to create their own pair of Nike shoes. This move was pivotal in Nike’s ability to raise D2C sales to 39% of its total brand revenue in 2021.
D2C Brands are Disruptors of the Retail Industry
We have also seen pure-play D2C brands, disruptors of the retail industry, using this model from the get-go. It’s an interesting show, to say the least, watching them take market share from traditional brands at such an accelerated pace.
Klar is one example of a D2C disruptor in the window manufacturing industry. The brand challenges the traditional and aims to build a future where homeowners are no longer forced to go through intermediaries to order goods for their home renovation project.
“We adopted a direct-to-consumer business model from the very beginning and this is by far the best decision we’ve ever made.” says Jannar Tammjärv, founder and CEO at Klar. Based on his experience, the success of a D2C company starts with building a strong brand and communicating its values to customers effectively.
A solid e-commerce foundation and a strong media presence are a must. In an era where consumers want to buy everything online, customer support excellence is a must. “I really believe that the main reason why many D2C companies fail is because they do not understand the importance of customer satisfaction,” he adds.
“We did many things wrong in the beginning, but we’ve also learned a lot along the way. Managing production and inventory by hand helped us understand our processes very well. However, now that we’ve grown and the business is scaling, our need for software automation is evident. We’re planning to ramp things up even further in 2022. For that, we need manufacturing software to automate our processes, keep a detailed, online-based inventory, mitigate waste, and become more efficient overall,” he adds.
And Klar is not alone. Manufacturers across virtually all sectors are investing heavily in adopting IoT, big data, and analytics to improve efficiency, reduce human error, and increase revenue. Digital transformation also drives hyper-automation opportunities. Gartner, Inc reports that the worldwide market for technology that enables hyper-automation is expected to reach $596.6 billion in 2022, an increase from $481.6 billion in 2020. “Organisations will require more IT and business process automation as they are forced to accelerate digital transformation plans in a post-COVID-19, digital-first world,” said Fabrizio Biscotti, Research Vice President at Gartner.
Industry 4.0 Technologies are Necessary to Achieve Operational Excellence
Several years ago, the adoption of Industry 4.0 technologies proved to bring significant benefits to manufacturers. But the COVID-19 pandemic made it evident that digital transformation is now absolutely necessary to achieve operational excellence.
In a survey conducted by McKinsey & Company of more than 400 global manufacturing companies, 94% of respondents confirmed that Industry 4.0 helped them keep operations running during the crisis, and 56% said the digital tools they adopted were essential to their pandemic responses. Conversely, the past year was a strong push to review operational strategies and refocus on Industry 4.0 capabilities for the companies that haven’t started their digital transformation journey.
The right tools, a solid action plan, and adequate support make it possible for any manufacturer, regardless of size or industry, to join the D2C revolution. That’s the foundation upon which long-term resilience and a sustained competitive advantage are built.